The FTSE 100 closed at its highest level since May 2008 after an encouraging
start to the US company earnings season put investors in London back in a
buying mood.

Forecast-beating fourth-quarter sales from aluminium producer Alcoa, the first firm in the Dow Jones Industrial Average to report its numbers, helped the UK’s benchmark index end two days of declines and climb 45.02 points to 6,098.65, taking it back to levels last seen before the 2008 collapse of Lehman Brothers.

It was Lloyds Banking Group that led the blue-chips higher in London, buoyed by a glowing assessment from UBS. Analysts at the broker argued that of the UK banks, Lloyds has the “simplest” investment strategy, with the company focused on its execution, and shares in the lender rose 2.51 – 4.9pc – to 53.37p.

“Lloyds is clearly going to deliver rising margins, falling costs and falling provisions, which should provide a very strong upswing to profitability and [earnings-per-share] momentum over the next few years,” the analysts said, raising their recommendation on the bank to “buy” from “neutral”.

They also believed the prospects for other British banks were brighter, speculating the UK has ended “its experiment of combining fiscal and monetary austerity”. As a result, the analysts lifted their price target on Royal Bank of Scotland to 410p from 328p and Barclays to 315p from 255p. RBS shares advanced 12.9 to 349.9p and Barclays gained 7.55 to 294¾p.

Asia-focused Standard Chartered was in investors’ sights following an endorsement from Bank of America Merrill Lynch. Stock-pickers at the broker included the lender on their list of “most preferred” banks and said the shares should benefit this year from the resolution of the Iran sanctions scandal. Standard Chartered added 51p to £16.57½.

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Meggitt was a strong riser on the benchmark index, with the aircraft components supplier buoyed by an upgrade to “buy” from “neutral” at Bank of America. The announcement in the afternoon that chief executive Terry Twigger was retiring and will be replaced by Stephen Young, currently Meggitt’s finance chief, was taken well by the market and the shares closed up 15½ at 425p.

Also among the climbers was water company United Utilities, 12 better at 687p. Dealers heard a rehash of vague bid speculation around the group, which was the subject of persistent takeover chatter last year.

At the other end of the table, supermarket group J Sainsbury, the latest retailer to update the market on Christmas trading, took the wooden spoon and fell 9.8 to 329.2p. Seymour Pierce noted slower than anticipated growth during the last quarter and cut its recommendation to “reduce” from “hold”.

Tesco will reveal tomorrow how it fared over the festive period and today shed 2.35 to 349.15 in Sainsbury’s wake.

Aviva was on the back foot and lost 8.2 to 373.7p, despite raising £353m from the disposal of its remaining shareholding in Dutch insurer Delta Lloyd.

Fears of the dividend being reined in weighed on the blue-chip company, with Barclays warning after the close on Tuesday, but before news of the stake sale broke, that the insurer may have to reduce its payout by 15pc this year. The broker cuts its recommendation on Aviva to “underweight” from “equal weight”.

BSkyB lost ground too and slipped 14½ to 778p after Morgan Stanley lowered its rating to “equal weight” from “overweight”, arguing it is “tough to see where the incremental good news comes from in 2013”. The broker also downgraded advertising giant WPP to “underweight” and the shares dipped 3 to 905½p.

On the FTSE 250 - up 74.05 points at 12,709.06 - the stand-out riser was beleaguered gold miner Centamin. The group has been beset by a succession of problems at its main asset, the Sukari mine in Egypt, which culminated in a temporary suspension of production at the site as well as problems making gold exports. However, Centamin revealed the disruption had done nothing to dent its overall performance and posted full-year production of 262,958 ounces, surpassing its guidance of 250,000 ounces. Relieved investors chased the shares 5.8 higher to 49.98p, making it the biggest riser on the mid-cap index.

Meanwhile, fellow precious metal producer African Barrick Gold was in demand. Shares in the group plunged almost 21pc a day earlier after talks with China National Gold over the acquisition of a majority stake in the company ended without a deal.

But the shares bounced 27.9 to 380p today, with Bank of America resuming coverage of the group with a “buy” rating and arguing the aggressive sell-off in the shares appeared overdone.

Government plans to tackle concerns over the way some pub groups treat their tenants weighed on Enterprise Inns, 2.2 lower at 100.9p, and Punch Taverns, down ¼ at 11¼p.

Finally, online business exchange company blur Group climbed 18½ – 21.4pc – to 105p after reporting a 129pc rise in the the number of project briefs submitted to it during the fourth quarter. The company, which floated on Aim in October at 82p a share, links up firms with business service providers such as app developers. Today it embarked on its first investor roadshow since its initial public offering last year.

The Telegraph Investor

Editor's comment:

Priced to be great value for new investors and those with large portfolios.